A slew of Budget measures such as introduction of real estate investment trusts and easier FDI norms have boosted the prospects of real estate sector players. These changes bode well for Prestige Estates, a Bangalore-based real estate developer. It is on a strong growth track in both its commercial and residential business. The company’s revenue and earnings grew 30 per cent and 10 per cent respectively in 2013-14. The stellar performance in a difficult year was due to an annual growth of 50 per cent in new project launches, 16 per cent in new sales and 26 per cent in rental income.

Investors have rewarded the stock – it has nearly doubled over the last year. At the current market price of ₹252, the stock trades at around 20 times its 2013-14 earnings. This is comparable to its peer Oberoi Realty and at a discount to Phoenix Mills which trades at multiple of 26 times. Strong upcoming project pipeline, improving margins and higher rental income make Prestige an attractive option for investors.

Prestige’s earnings are expected to increase by over 30 per cent in 2014-15, aided by both commercial and residential segment growth. The management expects bookings to increase nearly 15 per cent to ₹4,000 crore in 2014-15. Additionally, the company has unrecognised revenue (from existing bookings) of around ₹6,800 crore, as of March 2014. This is sizeable in comparison to the company’s revenue of nearly ₹2,500 crore in 2013-14. Many of these projects are likely to reach their revenue recognition threshold in the next two years, providing good revenue visibility.

Improving rentals

Prestige’s rental income from malls, hospitality and commercial assets has been increasing, as new properties are completed. After growing 25 per cent in 2013-14 to ₹290 crore, rental income is expected to rise nearly 35 per cent in the current year, to ₹390 crore.

However, capital expenditure on the rental portfolio has increased debt by ₹6,400 crore; the company’s consolidated net debt stands at ₹23,300 crore, as of March 2014. Debt-to-equity ratio stands at a manageable 0.8 times and may stay at these levels next year; thiscould likely improve in 2015-16 as cap-ex reduces. Also, the launch of real estate investment trusts could provide exit opportunities, easing debt concerns.

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